AN
ACT Relating to nonprofit hospital sales; amending RCW 70.44.007, 70.44.240,
and 70.44.300; adding a new section to chapter 70.44 RCW; adding a new chapter
to Title 70 RCW; and declaring an emergency.
BE IT
ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:
NEW
SECTION. Sec. 1. The
health of the people of our state is a most important public concern. The
state has an interest in assuring the continued existence of accessible,
affordable health care facilities that are responsive to the needs of the
communities in which they exist. The state also has a responsibility to
protect the public interest in nonprofit hospitals and to clarify the
responsibilities of local public hospital district boards with respect to
public hospital district assets by making certain that the charitable and
public assets of those hospitals are managed prudently and safeguarded
consistent with their mission under the laws governing nonprofit and municipal
corporations.
NEW
SECTION. Sec. 2. The
definitions in this section apply throughout this chapter unless the context
clearly requires otherwise.
(1)
"Department" means the Washington state department of health.
(2)
"Hospital" means any entity that is: (a) Defined as a hospital in
RCW 70.41.020 and is required to obtain a license under RCW 70.41.090; or (b) a
psychiatric hospital required to obtain a license under chapter 71.12 RCW.
(3)
"Acquisition" means an acquisition by a person of an interest in a
nonprofit hospital, whether by purchase, merger, lease, gift, joint venture, or
otherwise, that results in a change of ownership or control of twenty percent
or more of the assets of the hospital, or that results in the acquiring person
holding or controlling fifty percent or more of the assets of the hospital, but
acquisition does not include an acquisition if the acquiring person: (a) Is a
nonprofit corporation having a substantially similar charitable health care
purpose as the nonprofit corporation from whom the hospital is being acquired,
or is a government entity; (b) is exempt from federal income tax under section
501(c)(3) of the internal revenue code or as a government entity; and (c) will
maintain representation from the affected community on the local board of the
hospital.
(4)
"Nonprofit hospital" means a hospital owned by a nonprofit
corporation organized under Title 24 RCW.
(5)
"Person" means an individual, a trust or estate, a partnership, a
corporation including associations, limited liability companies, joint stock
companies, and insurance companies.
NEW
SECTION. Sec. 3. (1) A
person may not engage in the acquisition of a nonprofit hospital without first
having applied for and received the approval of the department under this
chapter.
(2)
An application must be submitted to the department on forms provided by the
department, and at a minimum must include: The name of the hospital being
acquired, the name of the acquiring person or other parties to the acquisition,
the acquisition price, a copy of the acquisition agreement, a financial and
economic analysis and report from an independent expert or consultant of the
effect of the acquisition under the criteria in section 7 of this act, and all
other related documents. The applications and all related documents are
considered public records for purposes of chapter 42.17 RCW.
(3)
The department shall charge an applicant fees sufficient to cover the costs of
implementing this chapter. The fees must include the cost of the attorney
general's opinion under section 6 of this act. The department shall transfer
this portion of the fee, upon receipt, to the attorney general.
NEW
SECTION. Sec. 4. (1)
The department, in consultation with the attorney general, shall determine if
the application is complete for the purposes of review. The department may
find that an application is incomplete if a question on the application form
has not been answered in whole or in part, or has been answered in a manner
that does not fairly meet the question addressed, or if the application does
not include attachments of supporting documents as required by section 3 of
this act. If the department determines that an application is incomplete, it
shall notify the applicant within fifteen working days after the date the application
was received stating the reasons for its determination of incompleteness, with
reference to the particular questions for which a deficiency is noted.
(2)
Within five working days after receipt of a completed application, the
department shall publish notice of the application in a newspaper of general
circulation in the county or counties where the hospital is located and shall
notify by first class United States mail, electronic mail, or facsimile
transmission, any person who has requested notice of the filing of such
applications. The notice must state that an application has been received,
state the names of the parties to the agreement, describe the contents of the
application, and state the date by which a person may submit written comments
about the application to the department.
NEW
SECTION. Sec. 5.
During the course of review under this chapter, the department shall conduct
one or more public hearings, at least one of which must be in the county where
the hospital to be acquired is located. At the hearings, anyone may file
written comments and exhibits or appear and make a statement. The department
may subpoena additional information or witnesses, require and administer oaths,
require sworn statements, take depositions, and use related discovery
procedures for purposes of the hearing and at any time prior to making a
decision on the application.
A
hearing must be held not later than forty-five days after receipt of a
completed application. At least ten days' public notice must be given before
the holding of a hearing.
NEW
SECTION. Sec. 6. (1)
The department shall provide the attorney general with a copy of a completed
application upon receiving it. The attorney general shall review the completed
application, and within forty-five days of the first public hearing held under
section 5 of this act shall provide a written opinion to the department as to
whether or not the acquisition meets the requirements for approval in section 7
of this act.
(2)
The department shall review the completed application to determine whether or
not the acquisition meets the requirements for approval in sections 7 and 8 of
this act. Within thirty days after receiving the written opinion of the
attorney general under subsection (1) of this section, the department shall:
(a)
Approve the acquisition, with or without any specific modifications or
conditions; or
(b)
Disapprove the acquisition.
(3)
The department may not make its decision subject to any condition not directly
related to requirements in section 7 or 8 of this act, and any condition or
modification must bear a direct and rational relationship to the application
under review.
(4)
A person engaged in an acquisition and affected by a final decision of the
department has the right to an adjudicative proceeding under chapter 34.05
RCW. The opinion of the attorney general provided under subsection (1) of this
section may not constitute a final decision for purposes of review.
(5)
The department or the attorney general may extend, by not more than thirty
days, any deadline established under this chapter one time during consideration
of any application, for good cause.
NEW
SECTION. Sec. 7. The
department shall only approve an application if the parties to the acquisition
have taken the proper steps to safeguard the value of charitable assets and
ensure that any proceeds from the acquisition are used for appropriate charitable
health purposes. To this end, the department may not approve an application
unless, at a minimum, it determines that:
(1)
The acquisition is permitted under chapter 24.03 RCW, the Washington nonprofit
corporation act, and other laws governing nonprofit entities, trusts, or
charities;
(2)
The nonprofit corporation that owns the hospital being acquired has exercised
due diligence in authorizing the acquisition, selecting the acquiring person,
and negotiating the terms and conditions of the acquisition;
(3)
The procedures used by the nonprofit corporation's board of trustees and
officers in making its decision fulfilled their fiduciary duties, that the
board and officers were sufficiently informed about the proposed acquisition
and possible alternatives, and that they used appropriate expert assistance;
(4)
No conflict of interest exists related to the acquisition, including, but not
limited to, conflicts of interest related to board members of, executives of,
and experts retained by the nonprofit corporation, acquiring person, or other
parties to the acquisition;
(5)
The nonprofit corporation will receive fair market value for its assets. The
attorney general or the department may employ, at the expense of the acquiring
person, reasonably necessary expert assistance in making this determination.
This expense must be in addition to the fees charged under section 3 of this
act;
(6)
Charitable funds will not be placed at unreasonable risk, if the acquisition is
financed in part by the nonprofit corporation;
(7)
Any management contract under the acquisition will be for fair market value;
(8)
The proceeds from the acquisition will be controlled as charitable funds
independently of the acquiring person or parties to the acquisition, and will
be used for charitable health purposes consistent with the nonprofit
corporation's original purpose, including providing health care to the
disadvantaged, the uninsured, and the underinsured and providing benefits to
promote improved health in the affected community;
(9)
Any charitable entity established to hold the proceeds of the acquisition will
be broadly based in and representative of the community where the hospital to
be acquired is located, taking into consideration the structure and governance
of such entity; and
(10)
A right of first refusal to repurchase the assets by a successor nonprofit
corporation or foundation has been retained if the hospital is subsequently
sold to, acquired by, or merged with another entity.
NEW
SECTION. Sec. 8. The
department shall only approve an application if the acquisition in question
will not detrimentally affect the continued existence of accessible, affordable
health care that is responsive to the needs of the community in which the hospital
to be acquired is located. To this end, the department shall not approve an
application unless, at a minimum, it determines that:
(1)
Sufficient safeguards are included to assure the affected community continued
access to affordable care, and that alternative sources of care are available
in the community should the acquisition result in a reduction or elimination of
particular health services;
(2)
The acquisition will not result in the revocation of hospital privileges;
(3)
Sufficient safeguards are included to maintain appropriate capacity for health
science research and health care provider education;
(4)
The acquiring person and parties to the acquisition are committed to providing
health care to the disadvantaged, the uninsured, and the underinsured and to
providing benefits to promote improved health in the affected community.
Activities and funding provided under section 7(8) of this act may be
considered in evaluating compliance with this commitment; and
(5)
Sufficient safeguards are included to avoid conflict of interest in patient
referral.
NEW
SECTION. Sec. 9. (1)
The secretary of state may not accept any forms or documents in connection with
any acquisition of a nonprofit hospital until the acquisition has been approved
by the department under this chapter.
(2)
The attorney general may seek an injunction to prevent any acquisition not
approved by the department under this chapter.
NEW
SECTION. Sec. 10. The
department shall require periodic reports from the nonprofit corporation or its
successor nonprofit corporation or foundation and from the acquiring person or
other parties to the acquisition to ensure compliance with commitments made.
The department may subpoena information and documents and may conduct onsite
compliance audits at the acquiring person's expense.
If
the department receives information indicating that the acquiring person is not
fulfilling commitments to the affected community under section 8 of this act,
the department shall hold a hearing upon ten days' notice to the affected
parties. If after the hearing the department determines that the information
is true, it may revoke or suspend the hospital license issued to the acquiring person
pursuant to the procedure established under RCW 70.41.130, refer the matter to
the attorney general for appropriate action, or both. The attorney general may
seek a court order compelling the acquiring person to fulfill its commitments
under section 8 of this act.
NEW
SECTION. Sec. 11. The
attorney general has the authority to ensure compliance with commitments that
inure to the public interest.
NEW
SECTION. Sec. 12. An
acquisition of a hospital completed before the effective date of this act and
an acquisition in which an application for a certificate of need under chapter
70.38 RCW has been granted by the department before the effective date of this
act is not subject to this chapter.
NEW
SECTION. Sec. 13. No
provision of this chapter derogates from the common law or statutory authority
of the attorney general.
NEW
SECTION. Sec. 14. The
department may adopt rules necessary to implement this chapter and may contract
with and provide reasonable reimbursement to qualified persons to assist in
determining whether the requirements of sections 7 and 8 have been met.
Sec.
15. RCW
70.44.007 and 1982 c 84 s 12 are each amended to read as follows:
As
used in this chapter, the following words ((shall)) have the meanings
indicated:
(1)
((The words)) "Other health care facilities" ((shall))
means nursing home, extended care, long-term care, outpatient and
rehabilitative facilities, ambulances, and such other facilities as are
appropriate to the health needs of the population served.
(2)
((The words)) "Other health care services" ((shall))
means nursing home, extended care, long-term care, outpatient,
rehabilitative, health maintenance, and ambulance services and such other
services as are appropriate to the health needs of the population served.
(3)
"Public hospital district" or "district" means public
health care service district.
Sec.
16. RCW
70.44.240 and 1982 c 84 s 19 are each amended to read as follows:
Any
public hospital district may contract or join with any other public hospital
district, any publicly owned hospital, any nonprofit hospital, any corporation,
any other legal entity, or individual to acquire ((or provide
services or facilities)), own, operate, manage, or provide any hospital
or other health care facilities or hospital services or other health care
services to be used by individuals, districts, hospitals, or others,
including the providing of health maintenance services. If a public
hospital district chooses to contract or join with another party or parties
pursuant to the provisions of this chapter, it may do so through the establishment
of a nonprofit corporation, partnership, limited liability company, or other
legal entity of its choosing in which the public hospital district and the
other party or parties participate. The governing body of such legal entity
shall include representatives of the public hospital district, including
members of the public hospital district's board of commissioners. A public
hospital district contracting or joining with another party pursuant to the
provisions of this chapter may appropriate funds and may sell, lease, or
otherwise provide property, personnel, and services to the legal entity
established to carry out the contract or joint activity.
Sec.
17. RCW
70.44.300 and 1984 c 103 s 4 are each amended to read as follows:
(1)
The board of commissioners of any public hospital district may sell and convey
at public or private sale real property of the district ((which)) if
the board ((has determined)) determines by resolution that the
property is no longer required for public hospital district purposes or
determines by resolution that the sale of the property will further the
purposes of the public hospital district. ((Such sale and conveyance
may be by deed or real estate contract.))
(2)
Any sale of district real property authorized pursuant to this section shall be
preceded, not more than one year prior to the date of sale, by market value
appraisals by three licensed real estate brokers or professionally designated
real estate appraisers as defined in RCW 74.46.020 or three independent
experts in valuing health care property, selected by the board of
commissioners, and no sale shall take place if the sale price would be less
than ninety percent of the average of such appraisals.
(3)
When the board of commissioners of any public hospital district proposes a sale
of district real property pursuant to this section and the value of the
property exceeds one hundred thousand dollars, the board shall publish a notice
of its intention to sell the property. The notice shall be published at least
once each week during two consecutive weeks in a legal newspaper of general
circulation within the public hospital district. The notice shall describe the
property to be sold and designate the place where and the day and hour when a
hearing will be held. The board shall hold a public hearing upon the proposal
to dispose of the public hospital district property at the place and the day
and hour fixed in the notice and consider evidence offered for and against the
propriety and advisability of the proposed sale.
(4)
If in the judgment of the board of commissioners of any district the sale of
any district real property not needed for public hospital district purposes
would be facilitated and greater value realized through use of the services of
licensed real estate brokers, a contract for such services may be negotiated
and concluded. The fee or commissions charged for any broker service shall not
exceed seven percent of the resulting sale price for a single parcel. No licensed
real estate broker or professionally designated real estate appraisers as
defined in RCW 74.46.020 or independent expert in valuing health care
property selected by the board to appraise the market value of a parcel of
property to be sold may be a party to any contract with the public hospital
district to sell such property for a period of three years after the appraisal.
NEW
SECTION. Sec. 18. A
new section is added to chapter 70.44 RCW to read as follows:
(1)
When evaluating a potential acquisition, the commissioners shall determine
their compliance with the following requirements:
(a)
That the acquisition is authorized under chapter 70.44 RCW and other laws
governing public hospital districts;
(b)
That the procedures used in the decision-making process allowed district
officials to thoroughly fulfill their due diligence responsibilities as
municipal officers, including those covered under chapter 42.23 RCW governing
conflicts of interest and chapter 42.20 RCW prohibiting malfeasance of public
officials;
(c)
That the acquisition will not result in the revocation of hospital privileges;
(d)
That sufficient safeguards are included to maintain appropriate capacity for
health science research and health care provider education;
(e)
That the acquisition is allowed under Article VIII, section 7 of the state
Constitution, which prohibits gifts of public funds or lending of credit and
Article XI, section 14, prohibiting private use of public funds;
(f)
That the public hospital district will retain control over district functions
as required under chapter 70.44 RCW and other laws governing hospital
districts;
(g)
That the activities related to the acquisition process complied with chapters
42.17 and 42.32 RCW, governing disclosure of public records, and chapter 42.30
RCW, governing public meetings;
(h)
That the acquisition complies with the requirements of RCW 70.44.300 relating
to fair market value; and
(i)
Other state laws affecting the proposed acquisition.
(2)
The commissioners shall also determine whether the public hospital district
should retain a right of first refusal to repurchase the assets by the public
hospital district if the hospital is subsequently sold to, acquired by, or
merged with another entity.
(3)(a)
Prior to approving the acquisition of a district hospital, the board of
commissioners of the hospital district shall obtain a written opinion from a
qualified independent expert or the Washington state department of health as to
whether or not the acquisition meets the standards set forth in section 8 of
this act.
(b)
Upon request, the hospital district and the person seeking to acquire its
hospital shall provide the department or independent expert with any needed
information and documents. The department shall charge the hospital district
for any costs the department incurs in preparing an opinion under this
section. The hospital district may recover from the acquiring person any costs
it incurs in obtaining the opinion from either the department or the
independent expert. The opinion shall be delivered to the board of
commissioners no later than ninety days after it is requested.
(c)
Within ten working days after it receives the opinion, the board of
commissioners shall publish notice of the opinion in at least one newspaper of
general circulation within the hospital district, stating how a person may
obtain a copy, and giving the time and location of the hearing required under
(d) of this subsection. It shall make a copy of the report and the opinion
available to anyone upon request.
(d)
Within thirty days after it received the opinion, the board of commissioners
shall hold a public hearing regarding the proposed acquisition. The board of
commissioners may vote to approve the acquisition no sooner than thirty days
following the public hearing.
(4)(a)
For purposes of this section, "acquisition" means an acquisition by a
person of any interest in a hospital owned by a public hospital district,
whether by purchase, merger, lease, or otherwise, that results in a change of
ownership or control of twenty percent or more of the assets of a hospital
currently licensed and operating under RCW 70.41.090. Acquisition does not
include an acquisition where the other party or parties to the acquisition are
nonprofit corporations having a substantially similar charitable health care
purpose, organizations exempt from federal income tax under section 501(c)(3)
of the internal revenue code, or governmental entities. Acquisition does not
include an acquisition where the other party is an organization that is a
limited liability corporation, a partnership, or any other legal entity and the
members, partners, or otherwise designated controlling parties of the
organization are all nonprofit corporations having a charitable health care
purpose, organizations exempt from federal income tax under section 501(c)(3)
of the internal revenue code, or governmental entities. Acquisition does not
include activities between two or more governmental organizations, including
organizations acting pursuant to chapter 39.34 RCW, regardless of the type of
organizational structure used by the governmental entities.
(b)
For purposes of this subsection (4), "person" means an individual, a
trust or estate, a partnership, a corporation including associations, a limited
liability company, a joint stock company, or an insurance company.
NEW
SECTION. Sec. 19. If
any provision of this act or its application to any person or circumstance is
held invalid, the remainder of the act or the application of the provision to
other persons or circumstances is not affected.
NEW
SECTION. Sec. 20.
Sections 1 through 14 of this act constitute a new chapter in Title 70 RCW.
*NEW
SECTION. Sec. 21.
This act is necessary for the immediate preservation of the public peace,
health, or safety, or support of the state government and its existing public
institutions, and takes effect immediately.
*Sec. 21 was vetoed. See message at end of chapter.
